LONDON (InsideBitcoins) — The technology that underpins Bitcoin stems from creative minds that perceived flaws in the existing financial structure, deficiencies that were in sore need of addressing. The founders of bitcoin, whether a single or group-pseudonymous Satoshi Nakamoto, sought to create a system that was fully proofed against the corruption of old world ideology. And yet, they only managed to create a foundation, not structure, an inoculation against old world ideas, not a vaccine. In short, the currency fixes some problems, but it’s not perfect. Not yet. And even if it were, several applications of the currency’s fundamental technology, the block chain, have yet to be fully explored.
Paul Snow, creative director and CEO of Factom seeks to move the block chain one step closer to perfection by using it to fix what is known as the system of record problem, something that Snow has gone to great lengths to explain via his white paper.
A living ledger
“We provide a mechanism to document a business process,” he told Inside Bitcoins, “and we do so in a way that allows you to document that process over multiple computer systems. And it allows the creation of a related set of records and these records can include a hash of your digital artefact so it could be a mortgage it could be a notice about a change to the account.”
This idea, of smart contracts, is one that has been creating a buzz in the early adopter community for some time, the block chain is after all at its heart a ledger but one in where every interested party is locked into a kind of agreement sync. In effect, the block chain is non Euclidean; it looks identical from every conceivable angle.
“A mortgage originator is the institution that creates the mortgage; they and sell it to the homeowner and then it is often packaged into a mortgage backed security, the security changes hands from time to time and every so often the management of that security changes hands too, so there are many parties involved,” Snow said.
Closing the gaps and filling the holes
Keeping track of the life cycle of even a single mortgage as it undergoes such metamorphosis is not in itself a problem; as long as all the parties in question stay in business, that is. But in 2008 the financial crises hit, organisations failed, computer systems were unplugged and sold off. Suddenly there were gaps and holes in records and it was these gaps that led to foreclosures.
“We create a place for an organisation to place a series of signed records, digital signatures which act like fingerprints do in the real world in that they are completely unique. So at every step of the way organisations can verify all these hashes and more to the point, they can propagate them through the system and everyone could trust these communications because they could validate it against these hashes.”
And this idea remains one of the least understood aspects of the block chain. If you have a chain of hashes that defines your business process, you don’t have to trust the source from which you get the data, because it is in effect self validating. And what works for currency can, in effect, work for contracts.
“Think of what happened in the Gulf of Mexico with BP,” Snow agreed. “If they had used our architecture underneath their business processes they would have known exactly what contractors were doing, they could audit those processes and maybe even have avoided the spill. But even after the spill you’d be able to know what contractors did what and who was responsible for the decisions on day one. And lots of people might be surprised and say ‘Surely there’s a paper trail anyway!’ Well, we still don’t know the answer to the question ‘Who was responsible?’ there are too many systems and the whole thing has effectively become a guessing game.”
Ian Jackson is an Inside Bitcoins correspondent based in the U.K.